VARIOUS TYPES OF AUDIT IN THE BANK

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VARIOUS TYPES OF AUDIT IN THE BANK

• BY
• BALJEET KUMAR SHARMA
• Asstt Gen Manager
• SBLC, DEHRADUN

2
AUDIT FUNCTION

• CREDIT AUDIT CODUCTED BY INSPECTION MANAGEMENT
  AUDIT DEPARTMENT, CORPORATE CENTRE, HYDERABAD
• INFORMATION SYSTEMS (IS) AUDIT CONDUCTED BY
  INSPECTION AUDIT DEPARTMENT, CORPORATE CENTRE,
  HYDERABAD
• STATUTORY AUDIT CONDUCTED BY OUTSIDE CHARTERED
  ACCOUNTANTS EMPANELLED BY RBI
• CIRCLE AUDIT CONDUCTED BY CIRCLE AUDIT
  DEPARTMENT
• CONCURRENT AUDIT CONCURRENT AUDITORS ARE POSTED
  IN GROUP-I AND OTHER SELEXCT BRANCHES
• INCOME AUDIT WILL BE ORDERED BY CGM AT SELECT
  BRANCHES AT THE INSTANCE OF CORPORATE CENTRE
• AUDIT UNDER SECTION 35 CONDUCTED BY RBI
  INSPECTORS UNDER SECTION 35 OF BANKING REGULATION
  ACT
• FEMA AUDIT CONDUCTED BY RBI AS PER SECTION 12 OF
  FEMA ACT
• GOVERNMENT AUDIT
• MANAGEMENT AUDIT
• RFIA RISK FOCUSED INTERNAL AUDIT, CONDUCTED BY
  INSPECTION MANAGEMENT AUDIT DEPARTMENT,
  CORPORATE CENTRE, HYDERABAD

3
GENESIS OF RISK FOCUSED INTERNAL AUDIT

• RBI in its monetary policy Statement for the year
  2001-02 announced the move towards Risk Based
  Supervision (RBS) of Banks
• In the light of changing trends in the
  international banking scenario due to
  globalization, RBI introduced RBS in the banks
• Risk Based Internal audit is a part of RBS

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NEED TO MOVE TO RFIA

• Deregulation and liberalization of Indian
  Financial sector
• New financial markets and products, Higher Risk
• Internal control system, Internal audit function
  conforming to BASEL norms
• New BASEL CAPITAL ACCORD
• Providing necessary checks and balances

5
WHAT IS INTERNAL AUDIT?

• Internal audit must review and report upon the
  control environment as a whole
• It is the process by which Risks are identified,
  analyzed and managed
• Reports on the reliability and integrity of
  corporate management function, and
• Comments on compliance with rules and regulations

6
WHEN WAS RFIA INTRODUCED IN SBI?

• As part of introduction of RBS, State Bank of
  India introduced Risk Focused Internal Audit
  (RFIA) of all branches w.e.f. 01.04.2003 based on
  the recommendations of the Management Audit Group
  headed by Shri S N Sawaikar, Dy.MD (Retd) (Also
  called Sawaikar Committee)

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SALIENT FEATURES OF RFIA

• Shift from the system of full scale transaction
  testing to risk identification, prioritization of
  audit areas and allocation of audit resources
  based on risk management
• Risk identification (Grouping of branches)
• Rigour/Frequency of Audit based on Risk profile
  emerging
• Functionally independent in all areas of Audit
• The SIGH portion of erstwhile inspection report
  format has also been modified in tune with
  parameters contained in Audit Report Formats with
  new code numbers and has been renamed SDRM
  (Serious Deviations in Risk Management systems)
• Concept of Management Letter, generation of Heat
  Maps and submission of special reports

8
BRANCH CATEGORISATION UNDER RFIA

• As per initial audit plan, branches have been
  categorized into three groups based on perception
  of inherent risks assessed on banks products,
  services, volume of business, complexity of
  business and contribution to banks income. Group
  I (High Risk), Group II (Medium Risk) and Group
  III (Low Risk). Review of grouping has been done
  with effect from 01.04.2006 after completion of
  one audit cycle and on the basis of feedback
  received.

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THE MAJOR CHANGES INITIATED IN RFIAw.e.f.
01.04.2006

• Regrouping of branches
• Business Parameters de-linked from Risk
  assessment. Coe parameters in Set I and Set II
  have been replaced by Risk and Business
  Parameters
• Three rating system introduced
• Separate ARFs for various types of branches and
  BPR entities
• Separate ARFs for Bank Master and CBS branches
  designed
• I.S.Audit formats in tune with IT / IS security
  policies developed
• Focused audit queries added in customer service,
  fraud prevention, control environment, branch
  management, marketing efforts, etc.
• Rating / scoring pattern changed
• Rationalization the integration of credit audit
  score for credit risk management with cc audit
  report
• Provision for capturing trend of risk over
  previous two audits (To assess whether increasing
  / stable / decreasing)

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Significance of regrouping of branches now

• Grouping of branches is a dynamic concept and
  based on the actual risk experience, the branches
  in the group would need to be reviewed at
  periodical intervals.
• Our Operational Risk Management (ORM)
  Consultants, M/s. Deloitte Touche, suggested
  that the number of Group I branches should be
  brought down. And we need to update the grouping
  on recent business data because the business data
  used by Sawaikar committee was as on 31.03.2001

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THE NUMBER OF BRANCHES CATEGORISED UNDER GROUP I
AND THE REVISED NORMS FOR CATEGORIZATION

• As per the revised norms given below, 314
  branches were categorized under Group I having
  share of 32 of deposits, 57 of advances, 52 of
  Interest Income, 52 of Other Income and 89 of
  Forex Income. (Based on figures as on 31.03.2005)
• All DGM Above Incumbency Branches
• All CAG, MCG SAMG Branches
• All Branches with Non Food Advances exceeding
  Rs.100 Crore
• Branches with aggregate Non Food and Non-CI
  advances of Rs.50 Crore and above
• Branches with Other Income of Rs.10 Crore and
  above (and not included in items above)

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REVISED RISK RATING SYSTEM

• SCORE RANGE
• 85 above
• Between 70 lt85
• Between 50 lt 70
• Less than 50

• GRADE
• WELL CONTROLLED
• ADEQUATELY CONTROLLED
• NEEDS IMPROVEMENT
• UN-SATISFACTORY

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REVISED GENERAL EFFICIENCY RATING SYSTEM w.e.f.
01.10.2008

• RATING SCORE RANGE RISK RATING
  SCORE
• 
  (MINIMUM)
• A PLUS
  W C 850
• A
  A C -700
• B PLUS
  N I 500
• B
  U S - ..
  

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REVISED PERIODICITY OF RFIA WITH EFFECT FROM
01.04.2006
RISK TAKING GROUP I (within) GROUP II (within) GROUP III (within)
Well controlled 18 months 21 months 21 months
Adequately controlled 15 months 18 months 18 months
Needs improvement 12 months 12 months 12 months
Unsatisfactory 6 to 8 months 6 to 8 months 6 to 8 months
Newly opened branches 12 months 12 months 12 months
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